U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T
INVESTMENT
POLICY MONITOR
No. 10
June 2013
A
PERIODIC
REPORT
BY
THE
U N C TA D
S E C R E TA R I A T
Regulatory review of cross-border
M&As
Safeguarding public interests or resorting to
protectionism?
Introduction
Most governments are keen to attract and facilitate foreign investment as
a means for productive capacity-building and sustainable development.
At the same time, numerous countries reinforce the regulatory
environment for foreign investment, make more use of industrial policies
in strategic sectors, tighten screening and monitoring procedures, and
closely scrutinize cross-border mergers and acquisitions (M&As).
This special edition of the Investment Policy Monitor presents recent
developments concerning the screening of cross-border M&As. An
analysis by UNCTAD of large M&As withdrawn between 2008-2012
shows that a significant share was abandoned due to regulatory
concerns, such as competition issues, economic benefit tests and
national security screening, or political opposition.
Note: This report can be freely cited provided appropriate acknowledgement is given to UNCTAD
and UNCTAD’s website is mentioned (www.unctad.org/diae). This publication has not been
formally edited.
1
Screening of cross-border M&As
A considerable share
of cross-border M&As
has been withdrawn for
regulatory or political
reasons.
Over the past 10 years, more than 2,000 announced cross-border M&As
were withdrawn. These deals represent a total gross value of $1.8 trillion,
or on average almost 15 per cent of the total value of cross-border M&As
per year (figure 1).1 The share of both the number and the value of the
withdrawn deals peaked during the financial crisis.
Figure 1. Gross value of completed and withdrawn
cross-border M&As and share of withdrawn M&As,
2003–2012
2500
30
25
2000
15
%
$ billion
20
1500
1000
10
500
0
5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Completed M&As
Withdrawn M&As
0
Share
Source: UNCTAD, based on information from Thomson Reuters database on M&As.
UNCTAD recently analysed 211 of the largest withdrawn cross-border
M&As – those with a transaction value of $500 million or more – in the
period between 2008 and 2012. Within this group, most announced
M&As were withdrawn for business considerations (81 per cent); the bulk
of the remaining M&As failed because of regulatory reasons or political
opposition (figure 2).
Figure 2. Regulatory or political reasons for
withdrawn cross-border M&As, 2008–2012
National
security
3%
Other
3%
General
political
opposition
6%
Economic
benefit
test
9%
Competition
policy
44%
Other
regulatory
approval
35%
Source: UNCTAD, based on information from Thomson Reuters database on M&As and
various news sources.
Note: Based on number of deals with a value of $500 million or more.
2
In some cases, companies did not wait for an official government decision
but withdrew their bid upon receiving indications that it would not obtain
approval, either for technical reasons or because of perceived general
political opposition (e.g. the announced BHP Billiton–Potash Corporation
M&A).2 Sometimes, proposed deals have been revised and then
resubmitted to eventually pass the approval procedures in a subsequent
round. In other cases, government interventions may have been influenced
by a combination of regulatory and political motivations, making it difficult
to assess the true motivations for the withdrawal of a deal.3
Between 2008 and 2012, M&As withdrawn for regulatory reasons or
political opposition had an approximate total gross value of $265 billion
(figure 3).4 Their share among all withdrawn cross-border M&As stood at
about 22 per cent in 2012, with a peak of over 30 per cent in 2010, showing
the impact of the financial crisis on governments’ regulatory and political
stance on cross-border takeovers. Even though the value of withdrawn
deals dropped in 2012, their share of all withdrawn cross-border M&As
remains relatively high.
Figure 3. Gross value of cross-border M&As
withdrawn for regulatory reasons or political
opposition and their share in the total value of
withdrawn cross-border M&As, 2008–2012
35
120
30
100
25
80
20
60
15
40
10
20
5
%
$ billion
140
0
2008
2009
2010
Value
2011
2012
0
Share
Source: UNCTAD, based on information from Thomson Reuters database on M&As.
Note: Based on deals with a value of $500 million or more.
The main industry from which M&As were withdrawn during this period
was the extractive industry (figure 4) (e.g. the BHP Billiton–Potash
Corporation M&A).5 Other key industries targeted include manufacturing,
financial services and telecommunications (e.g. the Deutsche Boerse–
NYSE Euronext and the Singapore Exchange–ASX M&As).6
3
Figure 4. Sectoral distribution of withdrawn crossborder M&As for regulatory reasons or political
opposition, 2008–2012
5%
14%
35%
Extractive industries
Governments use
numerous policy
instruments for
reviewing crossborder M&As.
Manufacturing (various)
Financial services
Telecommunication
Other services
22%
24%
Source: UNCTAD, based on information from Thomson Reuters database on M&As.
Note: Based on number of deals with a value of $500 million or more.
With respect to the countries of the targeted companies, Australia, the
United States and Canada constitute the top three – both in number of
deals withdrawn and in the value of those deals (table 1). They are also
the top three home countries of companies pursuing deals that were
withdrawn because of regulatory reasons or political opposition.
Table 1. Top 10 target and home countries of
cross-border M&As withdrawn for
regulatory reasons or political opposition,
by value, 2008–2012
Target country
Rank
1
2
3
4
5
6
7
8
9
10
Country/economy
Australia
United States
Canada
Hungary
South Africa
India
United Kingdom
Taiwan, Province of China
Hong Kong, China
Switzerland
Total value Number
($ billion) of deals
87.8
54.5
43.8
15.8
11.4
8.8
6.7
5.6
4.1
4.0
8
7
4
1
1
1
1
3
3
2
Home country
Country/economy
Total value
($ billion)
Number
of deals
Australia
United States
China
Austria
India
Germany
South Africa
Singapore
France
Hong Kong, China
112.9
47.1
23.6
15.8
11.4
10.2
8.8
8.3
6.1
2.2
5
7
5
1
1
1
1
1
1
1
Source:UNCTAD, based on information from Thomson Reuters database on M&As.
Note: Based on deals with a value of $500 million or more.
Policy instruments for reviewing M&As are manifold. Two basic categories
can be distinguished – those applying to M&As irrespective of the
nationality of the acquiring company and those applying only to foreign
investors (table 2). The most important example of the first category is
competition policy. Competition rules may not only apply to planned
M&As in the host country, but extend to M&As in third countries that
affect the domestic market (e.g. the Gavilon takeover by Marubeni).7 The
reason is the so-called “effects doctrine” in competition law, allowing for
jurisdiction over foreign conduct, provided that the economic effects of
the anticompetitive conduct are experienced on the domestic market.
Other examples are rules that govern the transferability of shares or the
issuance of “golden shares”, giving the owner (often the State) voting
powers disproportionate to the value of the shares, which can be used
to block a hostile takeover, be it domestic or foreign.8
4
Table 2. Policy instruments affecting cross-border
M&As
Applying only to foreign investors
Formal
1. Ownership ceilings
2. FDI screening
- National security
- Economic benefit
- Other screening (e.g. critical infrastructure)
Applying to both foreign and domestic
investors
Formal
1. Screening competition authority
2. Rules on transferability of shares
(e.g. “poison pill”, mandatory takeover)
3. “Golden share” options
Informal
1. Delaying takeover procedures foreign acquisition
2. Financial support of domestic companies
3. Promotion of domestic mergers
4. Political pressure
Source: UNCTAD.
Examples of the second category include, in particular, foreign ownership
ceilings and domestic screening procedures related to national security
considerations, industrial policy objectives or national benefit tests.
Countries may also have special screening rules for individual types
of foreign investors, such as State-owned enterprises, or for individual
investment activities (e.g. in critical infrastructure). Screening procedures
may require a positive contribution from the investor to the host economy
in order to get the deal approved, or they may require merely that the
proposed M&A not have a negative impact in the host country.
In addition to disapproving M&As, host countries may impose certain
conditions before allowing them. This approach is often used in
competition policies but may also play a role in other areas; for instance,
in the framework of an economic benefits test.
There are also informal instruments with which a government can hinder
unwelcome foreign takeovers. Governments may put political pressure on
potential foreign acquirers to prevent an M&A, for instance by indicating
that the company will face an unfavourable domestic environment if
the deal goes through, or may block an unwelcome foreign takeover by
finding a “friendly” domestic buyer (a “white knight”). Another tactic is
delay, for instance by establishing new or tightening existing regulatory
requirements for the tender or by providing financing only to domestic
bidders. Governments may also choose to support the merger of two
domestic companies into a new entity that is “too big to be taken over”
by foreign firms.9 By using these informal instruments, governments enter
a grey zone where it is difficult to challenge government actions in the
courts.
Finally, there are recent examples of “post M&A” government policies
aimed at reversing a foreign acquisition. In some cases, host governments
nationalized companies after their acquisition by foreign investors; in
other cases, governments purchased the foreigners’ shares or introduced
policies that negatively affected the operating conditions of foreign-owned
companies.
As countries make more use of industrial policies, tighten screening
and monitoring procedures, closely scrutinize cross-border M&As and
become more restrictive with regard to the degree of FDI involvement in
strategic industries, the risk that some of these measures are taken for
protectionist purposes grows. The share of regulations and restrictions in
newly adopted FDI-related policy measures has increased from 6 per cent
in 2000 to 25 per cent in 2012. With the emergence and rapid expansion
of international production networks, protectionist policies can backfire
on all actors, domestic and foreign, in such value chains.
As government regulation, screening and
monitoring grow, so
does the risk that such
measures can hide
protectionist aims.
5
In the absence of a commonly recognized definition of “investment
protectionism”, it is difficult to clearly identify measures of a protectionist
nature among investment regulations or restrictions.10 Countries may have
good reasons for restraining foreign investment. Restrictive or selective
FDI policies have been recognized as potentially important elements
of a development strategy and often are used for specific public policy
purposes. National security considerations may also justify FDI restrictions.
The problem is that what may be a legitimate reason to restrict investment
for one country may not be justifiable in the view of others.
Efforts should be undertaken at the international level to clarify the
meaning of “investment protectionism”, with a view to establishing a set of
criteria for identifying protectionist measures against foreign investment.
Fact-finding endeavours could build upon UNCTAD’s Investment Policy
Monitor publications, which regularly report on developments in national
and international investment policies, and the biannual UNCTAD-OECD
reports on investment measures by G-20 countries.
For latest FDI trends and policies please see UNCTAD’s forthcoming World Investment Report 2013 – Global value chains: investment and trade for development (to be launched on 26 June 2013)
and the 9th UNCTAD-OECD Report on G20 Investment Measures
(launched on 17 June 2013).
Notes
1
Data do not include pending deals that may be withdrawn later or withdrawn deals for which
no value is available. In some cases, a business or regulatory/political motivation to withdraw a
cross-border M&A may affect more than one deal, as recorded in the Thomson Reuters database
on M&As.
2
The Economic Times, “BHP Billiton abandons bid for fertiliser-maker Potash”, 15 November
2010. Available at http://articles. economictimes.indiatimes.com/2010-11-15/news/27607057_1_
potash-corp-marius-kloppers-saskatchewan (accessed 30 April 2013).
3
See S. Dinc and I. Erel (2012). “Economic Nationalism in Mergers and Acquisitions”. Charles A.
Dice Center Working Paper, No. 2009-24 and N. Harlé, K. Cool and P. Ombregt (2012). “Merger
Control and Practice in the BRIC Countries vs. The EU and the US: Review Thresholds”, INSEAD
Working Paper, No. 2012/100/ST (Paris: INSEAD).
4
Although in some cases regulatory or political motivations for withdrawn M&As have been
recorded, in many other deals are aborted for these reasons before they can be recorded as an
announced M&A. For this reason, it is safe to assume that in reality more deals would fall in this
category and thus that the impact of regulatory reasons and political opposition is in fact bigger.
The Economic Times, “BHP Billiton abandons bid for fertiliser-maker Potash”, 15 November
2010. Available at http://articles. economictimes.indiatimes.com/2010-11-15/news/27607057_1_
potash-corp-marius-kloppers-saskatchewan (accessed 30 April 2013).
5
Bloomberg, “Deutsche Boerse-NYSE Takeover Vetoed by European Commission”, 1 February
2012. Available at www. bloomberg.com/news/2012-02-01/european-commission-blocksproposed-deutsche-boerse-nyse-euronext-merger.html (accessed 30 April 2013), and Reuters,
“Singapore Exchange ends ASX bid after Australia rebuff”, 8 April 2011. Available at www.reuters.
com/article/2011/04/08/us-asx-sgx-idUSTRE7370LT20110408 (accessed 30 April 2013).
6
Financial Times, “China clears Marubeni-Gavilon deal”, 23 April 2013. Available at www.ft.com/
cms/s/0/032f2e7c-ac33-11e2- 9e7f-00144feabdc0.html#axzz2Rw2yv1Ly (accessed 30 April
7
2013).
8
See S. Dinc and I. Erel (2012). “Economic Nationalism in Mergers and Acquisitions”. Charles
A. Dice Center Working Paper, No. 2009-24 and A. Heinemann (2012). “Government Control of
Cross-Border M&A: Legitimate Regulation or Protectionism?” Journal of International Economic
Law, 15(3), pp. 843–870 (Oxford: Oxford University Press).
9
See S. Dinc and I. Erel (2012). “Economic Nationalism in Mergers and Acquisitions”. Charles A.
Dice Center Working Paper, No. 2009-24.
10
6
See UNCTAD World Investment Report 2012, p. 101.
For the latest investment trends
and policy developments,
please visit the website of the UNCTAD
Investment and Enterprise Division
www.unctad.org/diae/
http:investmentpolicyhub.org
@unctadwif
For further information,
please contact
Mr. James X. Zhan
Director
Investment and Enterprise Division
UNCTAD
UNCTAD/WEB/DIAE/PCB/2013/10 - June 2013
Tel.: 022 917 57 60
Fax: 022 917 04 98